Hidden costs of home ownership
By Lauren Souch, Ratehub.ca
Published on Friday November 30, 2012
Buying a home costs a lot more than a deposit and down payment. Things like land transfer tax, legal fees, a home inspection and title insurance need to be paid for, and the total costs can add up quickly. According to a report by TD Canada Trust, 6 per cent of Canadians didn't budget for any additional costs on top of their down payment, and 13 per cent said they forgot about many of the one-time fees.
"We have a hefty land transfer tax in B.C.," said Vancouver-based mortgage broker Dara Fahy, "and often clients aren't aware of this fee or they simply forgot about it."
In August 2012, the average cost of an MLS listed home in B.C. was $517,000. The land transfer tax on a home at that price would ring in at $6,540 — a staggering amount to pay, if you didn't budget for it.
The cost of closing
Buyers should be prepared to spend anywhere from 1.5 to 4 per cent of the total cost of their home on closing. On a $350,000 home, this means you'll need to save between $5,250 and $14,000 just to cover closing costs.
Everyone knows buying a home comes at a high and long-term cost. While many buyers prepare for their monthly mortgage payment, and even think about the long-term effects of rate changes, many forget about the other expenses that come with owning a property.
Take a $392,000 condo in Toronto, for example. While the mortgage payments on a 3.09 per cent interest rate might only be $1,724 a month, there's additional costs to consider, including condo maintenance fees ($318/month), utilities ($300/month) and property taxes ($3,030/year). When you take those other costs into account, that condo will end up costing upwards of $2,500 a month.
"I often sit down with first-time home buyers who think that buying a house costs less than renting because the mortgage payment is less than their rent," explains Christopher Molder, a Toronto mortgage broker. "But what they fail to realize is that there is a lot more to home ownership than mortgage payments."
According to that same TD report, 29 per cent of first-time home buyers didn't budget for ongoing costs like maintenance and utilities.
"An older house with issues will hurt the wallet quite a bit," said Fahy. "As a homeowner myself, I've been very fortunate with an easy property to maintain, but there is potential for costly repairs on a house."
Whether it's a leaky pipe or drafty windows, a home comes with ongoing maintenance and repairs. Simply landscaping a backyard can mean having to spend thousands of dollars. While landscaping might be optional, other necessary repairs — like a furnace replacement or new roof — can be quite expensive, especially when caught in an emergency situation with no savings.
A good rule of thumb is to budget between 3 to 5 per cent of the value of your home for upkeep and maintenance each year. On a $300,000 home, that means budgeting $9,000 to $15,000 annually.
The bottom line
Buying a home doesn't have to be an overwhelming or daunting experience, even for a first-time buyer. It's important to thoroughly research the home buying process and to keep a level head while shopping around for both homes and mortgage products.
By working with a reputable realtor and broker, buyers can further protect themselves from making some of the common mistakes associated with the purchase process.
"Make sure you understand your mortgage commitment letter and all the legal documents related to your new home," said Molder. "And if you have questions, be sure to ask."